- USD/MXN climbs to near 20.50 in Tuesday’s early European session, adding 1.1% on the day.
- Trump’s fresh tariff threats exert some selling pressure on the Mexican Peso.
- The FOMC meeting minutes will take center stage later on Tuesday.
The USD/MXN pair surges to around 20.50, the highest since early November, during the early European session on Tuesday. The Mexican Peso (MXN) weakens sharply after US President-elect Donald Trump vowed to enact 25% tariffs on all products from Mexico.
Early Tuesday, Trump said that he would announce a 25% tariff on all products from Mexico and Canada from his first day in office and impose an extra 10% tariff on goods from China. The prospect of likely substantial tariffs has prompted traders to become more cautious about the currencies of the United States' (US) trading partners. This, in turn, drags the MXN lower against the Greenback as Mexico is the number one exporter to the US.
“Risk sentiment is getting crushed for now on Trump’s tariff risks — the dollar is being viewed as a haven and the affected nations’ currencies like the Mexican peso are getting hammered,” said Mingze Wu, currency trader at StoneX Financial.
Investors will take more cues from the FOMC meeting minutes, which is due later on Tuesday. The cautious stance from the Federal Reserve (Fed) could contribute to the USD’s upside, while the dovish tone from the Fed officials might weigh on the USD in the near term. On Wednesday, the US preliminary Gross Domestic Product (GDP) data for the third quarter (Q3) and Core Personal Consumption Expenditures (Core PCE) - Price Index for October will be in the spotlight.
Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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